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TMI Blog2016 (12) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... of Capital Gains (as claimed by the assessee) and also upholding the disallowance of Rs. 4,90,274/- u/s 14A of the Income Tax Act, 1961 (hereinafter called 'the Act'). The appeal pertains to assessment year 2008-09. 2. It is seen from the records that the assessee company had filed it return of income declaring an income of Rs. 35,43,560/- which was processed u/s 143(1) of the Act and the case was later selected for scrutiny. The Assessing Officer noted that the assessee had shown gains from sale of Mutual Funds/Portfolio Management Scheme (PMS) under the head 'Income from Capital Gains'. The Assessing Officer was of the opinion that since the Memorandum of the assessee company authorized the assessee to carry on the business of sale/purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer noticed that the assessee had earned exempt income by way of dividends amounting to Rs. 4,90,274/- and that the assessee had itself added back a sum of Rs. 31,544/- u/s 14A in its computation of income. The Assessing Officer, however, opined that Rule 8D also had to be followed and he accordingly disallowed a further sum of Rs. 4,58,730/- (restricting the disallowance to Rs. 4,90,274/- i.e. the dividend earned) @ 0.5% on the average investments. 3. In appeal, the Ld. CIT (A) confirmed both the disallowances/adjustments and now the assessee is in appeal before us and has raised the following grounds of appeal:- "1. The lower authorities have erred and were not justified on facts & circumstances of the case and in law in rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng dividend. 5. The above grounds of appeal are independent without prejudice to each other." 4. The Ld. AR submitted that the authorities below have followed the decision of the ITAT for Assessment Year 2006-07 in making the adjustments for Assessment Year 2008-09 also. He further submitted that this decision of the ITAT has since been reversed by the Hon'ble Delhi High Court in I.T.A. No. 1658/2010 through the order dated 01.04.2014 which has been placed on record. 5. The Ld. AR submitted that in view of the decision of the Hon'ble Delhi High Court, this year's adjustments also deserve to be reversed as there has been no change in the factual situation as compared to that of AY 2006-07 for which the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tore the matter to the file of the Assessing Officer for allowing assessee's claim in terms of the order of the Hon'ble Delhi High Court. The grounds of the assessee on this issue are accordingly allowed. 9. As regards the issue of disallowance u/s 14A of the Act, it is seen that the scheme of section 14A has within it implicit notion of apportionment in cases where the expenditure is incurred for the composite/indivisible activities in which taxable and nontaxable income is received. But when it is possible to determine the actual expenditure in relation to the exempt income or when no expenditure has been incurred in relation to the exempt income, then principle of apportionment embedded in section 14 A has no application. The object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the rival submissions, it is seen that the assessee has claimed that expenditure amounting to Rs. 31,154/- had been incurred in relation to earning of exempt income. The Assessing Officer did not bring any evidence on record to relate the expenditure incurred with the amount of exempt income on one hand and relate the exempt income to the investments yielding exempt income on the other. He simply proceeded to calculate the disallowance under Rule 8D. In the absence of such evidence, it was patently wrong on the part of the Assessing Officer to compute disallowance u/s 14A of the Act by mechanically applying Rule 8D. The Assessing Officer has adopted the formula for estimating expenditure on the basis of investments but the justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but an offshoot of sub-section (2) of Section 14A. Subsection (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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